Stocks Snap 3-Day Rally on EU Woes; Banks Sag

Stocks finished near session lows Friday, breaking a three-day winning streak, sparked by fresh fears over the euro zone sovereign debt crisis and after a batch of mixed earnings reports.

The Dow and Nasdaq slid back into negative territory for the month, but all three major averages still posted modest gains for the week.

The Dow Jones Industrial Average tumbled 120.79 points, or 0.93 percent, to close at 12,822.57, led by H-P and BofA .

The S&P 500 fell 13.85 points, or 1.01 percent, to end at 1,362.66. The Nasdaq dropped 40.60 points, or 1.37 percent, to finish at 2,925.30.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, ended above 16.

For the week, the Dow gained 0.36 percent, the S&P 500 rose 0.43 percent, and the Nasdaq added 0.58 percent. Pfizer was the best performer on the-chip index for the week, while BofA led the laggards.

Stocks had rallied for most of the week thanks to gains in techs, and after Federal Reserve Chairman Ben Bernanke said the central bank stands ready to act if needed.

“You have to wonder why we were up in the first place,” said Joe Saluzzi, co-manager of trading at Themis Trading of the recent rally. “European problems haven’t gone away, volume’s been light, earnings haven’t been that great—I think the rally was overblown.”

The ongoing sovereign debt woes in Europe took center stage once again as euro zone finance ministers agreed to lend up to 100 billion euros to Spain so it can recapitalize its banks. Ten-year Spanish bond yields hit euro-era highs amid worries that the country will eventually run out of funds and need a sovereign bailout.

“This seems to be a little bit of a pullback,” said Gordon Charlop, managing director at Rosenblatt Securities. “[But] investors are looking at each stock story differently, so we’re not seeing behavior based on macro-events and that kind of behavior is overall a benefit to the market right now.”

General Electric reported earnings that edged past expectations by a penny, but revenue was lighter than estimates. The company added it was finding ways to grow despite a hazy economic outlook. GE is the minority owner of NBCUniversal.

Fellow tech giant Microsoft reported earnings excluding one-time items that beat analysts' expectations though the software giant posted its first net loss since going public in 1986and delivered revenue that fell short of expectations.

AMD tumbled more than 10 percent after the chipmaker forecast revenue below expectations amid the weak global economy. At least 18 brokerages slashed their price target on the company.

Meanwhile, Chipotle plunged more than 20 percent after the fast-casual said sales growth slowed due to the sluggish U.S. economy. Adding to woes, at least six brokerages lowered their price target on the company.

With grain prices soaring as the Midwest corn belt suffers its worst drought since 1956, analysts fear that other restaurant chains will also suffer. Panera Bread , Brinker International , and Buffalo Wild Wings were also trading lower. (Read More: Shoppers May Be Spared Worst of Corn Price Surge)

On the IPO front, Kayak jumped more than 25 percent on its first day of trading. The online travel firm is the first Internet tech company to go public since Facebook in May. And network security company Palo Alto Networks also surged in its trading debut. (Read More: After KYAK, PANW, Is IPO Market Back?)

Meanwhile, Fender Musical Instruments withdrew its planned IPO offering, citing "current market conditions." The company had planned on selling about 10.7 million shares at a price range of $13 to $15.

On the tech front Dell’s new software chief plans to increase the size of the business five-fold, a target that could eventually account for at least 25 percent of the PC maker's profits.

And Yahoo’s new CEO Marissa Mayer's compensation package could total more than $70 million, bonuses, restricted stock and stock options over five years, according to a regulatory filing.

Onyx Pharmaceuticals shares jumped more than 10 percent after the FDA approved the company's drug for patients with multiple myeloma who have already tried at least two other treatments for the blood cancer.